SanDisk 2010 Annual Report Download - page 5

Stockholders Letter
Letter to our Stockholders
2010 was a record year for SanDisk. Strong demand drivers for flash memory combined with our diversified
customer base and solid execution allowed us to deliver our best year ever with a record $4.8 billion in revenues
as well as record profitability and cash flows. We demonstrated our expertise in NAND flash memory technology
and system development through our deployment of 3-bit per cell flash in more than 50% of our sales. The
growth in our embedded product sales highlighted our ability to develop and implement end market solutions.
Solutions that, with our deep involvement with our partners, satisfy our customer needs. Our focus on operational
excellence and cost discipline enabled continued cost leadership, contributing to our record gross margins and
operating margins.
2010 Business Overview
If you recall, back in 2009, we had a focused initiative within SanDisk to broaden our channels and diversify our
customer base, especially within the OEM segment of our business. Those efforts began paying off in the second
half of 2009 and continued throughout 2010, contributing to our strong revenue growth in 2010. Our OEM
revenue grew 75% on a year-over-year basis and accounted for 62% of our product revenue. We gained
significant market share in the embedded business within OEM, as customers began adopting our iNAND™ and
other embedded solutions. Another noteworthy accomplishment was the initial success in migrating some of our
customers to our 3-bits per cell-based iNAND, an industry first in our view.
Our retail business accounted for 38% of product revenue and it grew 8% on a year-over-year basis. We
maintained or grew retail share across all key geographies and we enhanced our product mix, contributing to
significant expansion of retail gross margins in 2010.
From an end market perspective, the mobile market remained the key driver of our business and it accounted for
50% of our business mix, up from just 25% four years ago. The mobile business grew 64% on a year-over-year
basis. The imaging market accounted for 22% of our business and grew 22% as well on a year-over-year basis.
We gained imaging market share with both our SanDisk branded products as well as through sales to our private
label customers. The USB flash drive market drove 9% of our business in 2010, with the revenue level similar to
2009, as we consciously allocated our memory supply to optimize for price and profitability.
Growth Drivers
As we look ahead, we are focused on several powerful demand catalysts for flash memory, including:
smartphones, tablets, solid-state drives (“SSD”) for personal computers (“PCs”) and the Cloud.
Smartphones: With increasing functionality for still photos, music, video, television, navigation, games and
more, smartphones are providing an enhanced life-style experience to consumers worldwide. In addition, the
price points of smartphones continue to trend lower, largely due to carrier subsidies. As a result of increasing
functionality and affordability, according to market analysts, smartphone sales are expected to increase to nearly
a billion units by 2014. Many, if not most, of the smartphones contain high capacity NAND flash storage
solutions either in embedded or in removable formats. Our iNAND and other embedded solutions are broadly
used in a wide variety of smartphones available in the market today, and many of the smartphone models are also
sold with bundled SanDisk branded cards.
Tablets: The launch of the Apple iPad™ in 2010 galvanized a whole new category for NAND flash. According
to market analysts, this market started in the second half of 2010 and quickly grew to consume nearly 5% of
NAND industry supply for the full year 2010. A key enabler of richer media experience for consumers and a
productivity enhancer for business customers, tablets blur the demarcation between a smartphone and a portable
computer. Our iNAND product, which complies with the e-MMC interface for data transfer protocols, has been
designed into many of the tablet models. As this nascent market shifts to adopt the Serial ATA (“SATA”)
interface, we believe that our iSSD products, that support the SATA interface, will begin to gain traction.